ATO ‘takes tougher line with tax debt payment plans’

Billions in collectable debt mean the Tax Office is working to shorter time frames and responding more quickly to inaction.


Small businesses will witness more action from the ATO over outstanding lodgements and debt collection as it targets the $50.2 billion in collectable debt owed by the sector, according to a specialist in business restructuring and corporate insolvency at PwC.

Chris Sequeira said the ATO was adopting a stricter stance with tax debts after its relatively relaxed approach during COVID, when two-to-three-year payment plans without supporting financials were common.

“They’ve returned to the 12-month payment arrangements from before COVID, and in the past month or two they’ve gone back to wanting upfront payments, sometimes as much as 50 per cent of the outstanding debt,” he told the Tax Institute National GST Conference.

“Any 12-month payment plan also needs to be supported by cashflow projections. So the ATO is becoming a lot more stringent with payment plans.”

“During COVID, clients were able to get payment plans over two or three years with no upfront payment payment or supporting financials.”

The ATO warned in its Annual Report for 2022–23 that where businesses and taxpayers refused to engage, it would take “strong and deliberate action” as it increased its activities across debt collection.

The Tax Office is also becoming less lenient where a business or taxpayer missed a payment or defaulted on a payment plan, he warned.

“In the past month or so, where you’ve missed a payment, the ATO will issue a cancellation of the payment arrangement,” said Mr Sequeira.

“So accountants and their clients are receiving letters that say that their business payment arrangement is cancelled. In the past month we’ve seen that letter go out, which has been followed by a creditor’s statutory demand to start the winding up process against organisations. So the ATO is becoming very aggressive in that regard.”

Mr Sequeira said a creditor’s statutory demand or bankruptcy notice was a formal written demand served on either an organisation or individual, seeking the repayment of a debt within 21 days.

At the 21-day expiration, a creditor was able to file a winding up application against an organisation or a bankruptcy petition against an individual, provided that there was no genuine dispute or set-off claim regarding the debt.

Mr Sequeira said where a payment plan had been agreed, directors had to be careful to ensure that any payments were made quickly.

Where businesses are facing issues with their cash flow and found themselves unable to pay their debts, Mr Sequeira said they should consider the implications of non-payment carefully in light of the director penalty notice (DPN) regime.

“Non-payment of GST liabilities from period to period [for example] without the debts being paid down, are quickly detected by the ATO,” he said.

It was also important that businesses continued to lodge BAS, regardless of whether they were able to pay the debt in a timely manner.

“Where businesses fall behind on the lodgement of BASs by three months or more, the Commissioner can issue a lockdown DPN,” he said.

“As compared to a non-lockdown DPN, a lockdown DPN further restricts the options available to remit the penalty, notably, placing the business into administration does not result in remission of the penalty.”

A director receiving a lockdown DPN remained personally liable for payment of the penalty and the only recourse available was payment in full.

“Even where the entity is placed in liquidation, the Commissioner will continue pursuing the director for the penalty,” said Mr Sequeira.

“However, where a business continues to lodge BAS, whilst struggling with the payment of their liabilities, it has more options at its disposal.”



By Miranda Brownlee
31 October 2023


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